Socially responsible investing is a phrase used to describe several types of investment strategies: Ethical, Green, and even Faith-Based Investing. These types of investment strategies are usually limited to individual stocks or mutual funds.
The idea of Socially Responsible Investing, or SRI, can be defined as a way to provide individuals with a method of investing that uses a filter to look closely at a company's social or environmental characteristics; instead of basing decisions purely on financial performance. It is taking someone's beliefs and values, and applying them to the stocks they purchase.
Social investing describes a style that combines the desire to maximize financial return, as long as social good exists. Social investors will often favor environmentally responsible corporate practices, workforce diversity, and product safety and quality.
The classic example of Socially Responsible Investing is typically applied to companies that make alcohol, cigarettes, or own casinos. To some individuals, these companies sell "vices," and the world would be a better place without such companies. At least that is the belief. In practice, however, this form of investing is not that straightforward.
Let's take a look at a company like Walt Disney. To many individuals, this company would seem like a socially responsible choice. But Walt Disney has a very open-minded policy on diversity. So how can embracing diversity work against a company? They have a very supportive policy on homosexuality. That might seem like a good quality for a company, but a hard-line Catholic might not think that is a good policy. Diverging beliefs would allow one person to invest in Disney, while another would screen it out.
It would seem that Socially Responsible Investing is an individual decision. Thankfully, most people would agree on a company's environmental record. Are they a chronic polluter that is in the newspaper all the time? Have they attempted to mitigate pollution problems in any way, or do they fight for the right to pollute?
After the Valdez oil spill, Exxon's reputation suffered in the eyes of nearly all environmentalists. Regardless of the effort put forth to clean the shorelines and save animals, it was simply not enough. Not only did this company face a multi-billion dollar lawsuit, but for years it was deemed socially irresponsible to fill up a car at one of their service stations.
Individuals thinking about trying this investment strategy are not alone. There are many people that subscribe to this approach and it's been around for thousands of years. In biblical times, Jewish law prescribed ways to invest ethically. In the mid 1980's, Fortune Magazine called it "feel good" investing. Today, it's probably best described as "politically correct" investing.
There are some that believe social investing can trace its roots back to the Religious Society of Friends, better known as the Quakers. As far back as 1758, the Quakers prohibited members from participating in the business of buying or selling humans. Today, we often see religious institutions at the forefront of social investing.
Estimates from the Forum for Sustainable and Responsible Investment indicate there are about $8.72 trillion in assets attributed to socially responsible investments in 2015. This includes over 250 mutual funds and accounts held by individual investors and communities.
It also appears that SRI is slowly becoming a force to be reckoned with in the financial community:
Today, nearly every major brokerage house offers a choice of Socially Responsible Investment funds. In fact, some companies even specialize in this type of offering. Thinking back on the Walt Disney example given earlier; this form of investing is very individual. Read the prospectus carefully to ensure a thorough understanding of the fund's philosophy.
For those individuals interested in mutual funds, listed below are the top 10 performing SRI mutual funds as of September 2017. These top rated funds were selected based on their three year average annual return. The table below provides the mutual fund name, symbol and the three and ten year average returns.
|Mutual Fund Name||Symbol||3 Year Average||10 Year Average|
|Vanguard FTSE Social Index Fund||VFTSX||10.12%||7.29%|
|Calvert Small Cap Fund Class I||CSVIX||9.25%||7.74%|
|Green Century Equity Fund||GCEQX||8.88%||6.95%|
|Calvert Small Cap Fund Class A||CCVAX||8.74%||7.02%|
|Alger Responsible Investing Fund||SPEGX||8.34%||6.19%|
|Walden Equity Fund||WSEFX||8.15%||7.48%|
|Neuberger Berman Socially Resp.||NBSRX||7.95%||7.07%|
|Calvert Small Cap Fund Class C||CSCCX||7.92%||6.11%|
|Walden SMID Cap Fund||WASMX||7.89%||--|
|Pax ESG Beta Quality Fund||PXWGX||7.84%||7.02%|
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